Repaying your secured loan ahead of schedule can be appealing since it means you may be free from future repayments on this borrowing option. But is it possible, and how do you do it?
In this blog, we’ll explore if you can repay your loan early and whether it may be a good option.
Can I repay my secured loan early?
Yes, you may be able to repay your loan early. However, it's important to check your loan terms, as some lenders allow early repayment while others may not. When you take out the loan, make sure you understand all the terms and conditions to make sure you are getting the right loan for you.
If early repayment is allowed, be aware that some lenders might charge a fee for paying off the loan ahead of schedule. This is known as an early repayment charge and it can be a large fee. For example, some lenders may charge a percentage of the remaining balance or it may be a fixed fee.
Is it a good idea to repay my secured loan early?
When taking out a loan, you might be asked if you plan to repay it early. It's important to be honest about your plans so your broker or lender can offer the best advice for your situation.
While early repayment can seem like a good option, it's important to consider both the
advantages and disadvantages. Here are the pros and cons:
Pros
- You will be cleared of the monthly repayments, which could give you peace of mind.
- You may be able to save money on interest.
Cons
- Paying a large amount at once could mean you don't have the funds to prioritise other bills.
- You may have to pay an early repayment charge.
How can I pay off my loan early?
To pay off your loan early, start by calling your lender to explain your situation. Make sure you ask if there will be an early repayment charge and how much it will be.
Once you decide to repay early, your lender will give you a redemption or settlement statement. Then, pay the amount listed to your lender. They will subtract this from your total balance and cancel any future payments.
Alternatively, if you don't have the full amount to repay the loan, you may be able to make extra payments instead. Some lenders allow extra payments up to a limit without charging an early repayment charge, while others may apply this even for extra payments. Always check with your lender first to understand any costs and decide if this is the best option for you.
How much will I save by repaying my loan early?
How much you save by repaying your loan early depends on several factors. This includes the interest rate, total loan amount, loan term, and any early repayment charges. There’s no guaranteed amount you’ll save, and in fact, repaying early doesn’t always mean you’ll save money.
Before deciding, carefully consider all the costs involved and weigh up your options to decide on the best path for you.
If you’re unsure about the potential costs, consider talking to a financial advisor, or your lender, or using online calculators to estimate the amount.
Summary
Paying off your loan early may help you save money on interest. But, you need to check your loan terms carefully, especially for any early repayment charges that might apply.
Make sure you consider the pros and cons before deciding. If you can't pay off the whole loan at once, making extra payments might be an option. Be sure to review all potential costs and talk to your lender to choose the best approach for your situation.
Loans are secured against property. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
